Credit quality and risk remain the latest challenges for the CEE banking system says study

TIRANA, August 11ؔhe long-term prospects before the banking system in Central and Eastern Europe (CEE) remain unchanged and credit quality is seen as a major constraint for lending, according to a recent study of the UniCredit Group.
The prospects for a recovery of world growth are expected to boost CEE, but, however, economic growth in the region remains below potential, the study posted on the group’s website showed.
“Following the significant reduction of economic activity in 2009, the economists of the Group forecast a slow regional growth of 1.1% for 2010, which is a positive sign, but remains below the potential of the CEE region,” UniCredit Group said in a statement.
Currently banks in the region are out of the “liquidity-crisis mood” and liquidity for the lenders, especially for the foreign-owned, is not the key issue. “Now credit quality and risks are the constraints for the CEE banking sector. 2009 and 2010 will remain challenging, but the long term prospects of the region remain untouched,” UniCredit Group’s head of strategic analysis for CEE, Debora Revoltella, said.
According to the report, financial penetration will continue in CEE, even if with a more moderate pace of growth and recovery on the lending side will start from the corporate sector. The availability of funding on domestic or external level will remain one of the main drivers for growth.
The changing competitive environment also offers opportunities as new entrants could take opportunities, while unfocused players might exit the market. International banks active in the region – especially the top players – might strengthen their position, leveraging on their existing network and on their better access to international funding, providing the risk appetite is adequate.
“All in all, we expect the winners to be either new entrants or international players already active in the region, provided their ability to show adequate risk appetite and to leverage on strong funding position,” the bank said in the report.
According to UniCredit Group, CEE’s regional banking sector consists of 2,455 banks, with total assets of more than 2,100 billion euro($2,975 billion). The ranking of the top banks in CEE is led by UniCredit Group, operating through Bank Austria in CEE , with total assets of 121.6 billion euro and an after-tax profit before minority interest of 2.6 billion euro in 2008. Raiffeisen ranks second in terms of size in the region, with total assets of 85.4 billion euro and after-tax profit before minority interest of 1.078 billion euro. Erste Bank is in third place, with total assets of 79.3 billion euro but with its after-tax profit before minority interest of1.569 billion euro in second place.